Buying Houses in Foreclosure

One way to purchase a new home is to buy one that is going through foreclosure. These are properties in which the current owners can no longer pay the loan and their lender has begun proceedings to sell the house at auction or take possession itself. Purchasing a foreclosure property can produce a fantastic below-market value, but the process requires research into the best way to purchase and knowledge of your state’s foreclosure rules after the sale.

Research

If you’re seeking to buy a foreclosed home, conduct plenty of research before beginning any purchase process. Todd Beitler of the Real Estate Library, based in Boca Raton, Florida, says that 10 hours of research per week for five weeks is not out of the question. You can use foreclosure publications that list properties in your area or websites like RealtyTrac that feature a database of foreclosed properties. Banks list foreclosed properties on their website, and legal notices of foreclosures appear in the local newspaper. Once you find a property, do a title search to make sure the home has no liens attached to it. Those liens could become your responsibility if you purchase the home.

Home Condition

When you buy a foreclosed property, you’re agreeing to buy the home “as-is.” It’s one of the disadvantages to purchasing a foreclosed home. Any damage in the home becomes your responsibility. In some cases, uncaring owners damage their properties before leaving. Before you purchase, push as hard as you can for a home inspection. If that isn’t possible, consider a government foreclosure (HUD home), such as homes guaranteed by the Department of Housing and Urban Development. These homes undergo more rigorous standards for safety, and there’s a better chance there will be less damage in one of these homes.

Purchasing

There are three ways to buy foreclosures. The safest way, according to MSN Money, is to buy a real estate owned (REO) property. When houses don't sell at foreclosure auctions, they become property of the lender, which contracts with real estate agents to sell them. REO properties allow inspections, come with titles and are eligible for purchase with a home loan. Another way previously mentioned is to buy a home at a foreclosure auction. To complete the transaction, you must produce cash or a cashier's check after the auction. Third, you can make a pre-foreclosure purchase. This is a difficult purchase to execute because the transaction must be completed before the homeowner goes into default. In many cases, you can get the homeowner to sign over the deed and mortgage for a small purchase price. As the new owner, you are responsible for bringing the mortgage payments current.

Lending

When you purchase, pre-foreclosure and REO properties are more likely to be financed by lenders. REO properties are especially likely since banks are seeking to get the properties off their books. Banks may be willing to offer breaks on interest rates and fees to facilitate purchase. Securing a loan for an auction property is harder because in most cases there’s no home inspection and many lenders won’t underwrite a loan without one. If you are able to secure a loan before auction, the auctioneer will likely want a letter certifying that you have the money to cover your bid.

Right of Redemption

Each state has its own foreclosure rules, and most recognize the right of redemption. This gives the former owner of the foreclosed property the opportunity to repurchase the property after auction. Repurchase means paying the entire cost of the foreclosed loan, plus costs. In California, the right of redemption lasts for one year after the sale, unless the bank is able to recoup its investment in the sale. If that’s the case, the right of redemption lasts for 90 days after the sale.

About the Author

M.C. Postins has been a writer and editor since 1995. His work has appeared in newspapers, magazines and websites across the country, such as the "Charlotte Sun-Herald" and the "Denton Record-Chronicle." He received a Bachelor of Arts degree in journalism from Stephen F. Austin State University.